[Editorial] Quick Action Needed on Early Budget Spending

The government will spend in the first half of the year 60 percent of this year’s budget expenditure to relieve the credit crunch, and use more than 60 percent of a new fund for small businesses worth 50 trillion won (37.4 million U.S. dollars). This is because companies are expected to be financially strapped in the first quarter and strong businesses could go bankrupt despite making profits since the world`s real economy is slowing down faster than expected.

The government and the ruling party say they will check if fees for infrastructure construction are properly paid to subcontractors, but businesses remain skeptical. In the past, the government announced more budget expenditure in the first half of the year several times, but delayed spending to the second half because it took too much time to prepare for placing an order, design, sign contracts, and spend the budget. Though the money goes to contractors, if it reaches subcontractors too late, spending the budget in advance is meaningless.

Statistical time difference is also a factor that prevents effective budget spending. The government said it planned to spend 52 percent of the budget in 2006 and 55.7 percent in 2007 in the first half, but spent 53.5 percent and 56 percent, respectively. The time of spending, however, began at the point when the money went out of the national coffers. Though the government claims it spend the budget in advance, it becomes meaningless if the timing is set that way and the market cannot help but say it lacks money. This is especially serious in public projects involving many chains – the central government, provinces, public organizations, contractors and subcontractors.

For advance budget spending to be effective, drastic measures are needed to streamline the chains to prevent money from lingering in the government, state-run corporations and financial institutions and to help get the money quickly to businesses. Of course, preventing waste and moral hazard in the process is a must but preventing bureaucracy and official looking out for job security from getting in the way is more important. High-ranking officials at the Strategy and Finance Ministry, the Knowledge Economy Ministry and the Small and Medium Business Agency must help businesses realize the benefits of early budget spending by visiting companies and urge agencies to spend money instead of holding meaningless meetings about early spending. Hopefully, the government can move quickly to mitigate the expected shocks from a hard landing of the economy.